In a small flat in the German town of Erlangen in February 2003, an out-of-work Iraqi sat down with his wife to watch one of the world's most powerful men deliver the speech of his career on live TV.

As US secretary of state, Colin Powell gathered his notes in front of the United Nations security council, the man watching — Rafid Ahmed Alwan al-Janabi, known to the west's intelligence services as "Curveball" — had more than an inkling of what was to come. He was, after all, Powell's main source, a man his German handlers had feted as a new "Deep throat" — an agent so pivotal that he could bring down a government.

As Curveball watched Powell make the US case to invade Iraq, he was hiding an admission that he has not made until now: that nearly every word he had told his interrogators from Germany's secret service, the BND, was a lie.

Everything he had said about the inner workings of Saddam Hussein's biological weapons programme was a flight of fantasy - one that, he now claims was aimed at ousting the Iraqi dictator. Janabi, a chemical engineering graduate who had worked in the Iraqi industry, says he looked on in shock as Powell's presentation revealed that the Bush administration's hawkish decisionmakers had swallowed the lot. Something else left him even more amazed; until that point he had not met a US official, let alone been interviewed by one.

"I had the chance to fabricate something to topple the regime," he told the Guardian in a series of interviews carried out in his native Arabic and German. "I and my sons are proud of that, and we are proud that we were the reason to give Iraq the margin of democracy."

His interviews with the Guardian, which took place over two days, appeared to be partly a purge of conscience, partly an attempt to justify what he did. It also seems to be a bid to resurrect his own reputation, which might help him start again in Iraq — a country that eight years later is still reeling from more than 100,000 civilian deaths and the aftermath of a savage sectarian war.

The man who pulled off one of the greatest confidence tricks in the history of modern intelligence was not easy to pin down. He arrived at a hotel in his adopted home town of Karlsruhe, looking haggard after a sleepless night spent emailing. Heavy set, with plaintive eyes, smelling strongly of cigarettes, and shuffling with nervous energy, he slunk into a chair to begin answering questions, a process he seemed very familiar with.

"Colin Powell didn' t say I was the only reason for this war," he said. "He talked about three things. First of all, uranium; secondly, al-Qaida; and thirdly, my story.

"I don't know why the other sources, for the uranium and al-Qaida, remained hidden and my name got out. I accept it, though, because I did something for my country and for me that was enough."

Since the fall of Baghdad, Curveball's identity had been sought throughout Iraq and Europe. He was finally outed in late 2007 as the main source for Powell's speech, but has tried to keep a low profile ever since, refusing — under the orders of the BND — the approaches of the few reporters who had tracked him downto Karlsruhe.

The only other time Curveball has agreed to be interviewed was in late 2007, when he told CNN that he had been set up as a fall guy by the BND and had never breathed a word to them about WMD. Last year, he called the police on a Danish documentary crew who came knocking.

Curveball claims he was granted asylum by the German government on 13 March 2000, less than six months after arriving in Germany and before he had even been asked a question about biological weapons. He emphasises this point, aware that he could be seen as a simple opportunist. "The story about the biochemical weapons had nothing to do with my asylum claim. The German state — well, the BND, or someone from Germany, have said that I told them about the chemicals, because I wanted to claim asylum. That's not true."

He says that around three weeks after he was granted asylum, a German official, whom he identified as Dr Paul, came to see him. On his application, he had said he had worked as a chemical engineer, a fact that attracted extra attention.

"He told me he needed some information about my life. He said it was very important, that Iraq had a dictator and I needed to help."

At this point, according to Curveball, he decided to let his imagination run wild. For the next six months, he sat with Paul — the BND's resident expert on weapons of mass destruction - and calling upon his knowledge of chemical engineering from university and from his work in Baghdad, he manufactured a tale of dread.

This period was the genesis of Powell's fateful speech; what Curveball told Paul became the key pillar of Powell's UN presentation — the diagrams he displayed of mobile weapons trucks that could dispense biotoxins into the wind.

"We have first-hand descriptions of biological weapons factories on wheels," Powell said. "The source was an eyewitness — an Iraqi chemical engineer who supervised one of these facilities. He was present during biological agent production runs. He was also at the site when an accident occurred in 1998. Twelve technicians died."

The effect at the UN was dramatic. Here was a detailed first-hand account from an insider of the sinister and deceptive inner workings of Saddam's regime. It was tangible evidence; far more compelling than the other two elements of Powell's case for war, which seemed scant in detail and unlikely to persuade the invasion's naysayers.

Even now, Curveball seems bemused that his lies got as far as they did. He says he thought the game was up by the end of 2000. By that point, the BND had flown to Dubai to interview his former boss at Iraq's military industrial complex, Dr Basil Latif, who had told them that his former underling was a liar.

Several British intelligence officers were present at the meeting with Latif. Their German counterparts left Dubai seeing their prized source in a new light.

According to them, Curveball had claimed that Latif's son, who was then at school in Britain, was a procurer of WMD. That information was easily proven wrong by the British spooks.

The BND then returned to Germany and sent an officer to confront their source. "He says 'there (are) no trucks' and I say, ok, when (Dr Basil says) there are no trucks then (there are none)," Curveball recalled in broken English. "I did not speak to them again until (the) end of May 2002."

By the time the BND came calling again, Curveball says he had fended for himself for almost 18 months. He had been paid a monthly stipend by his handler, but had not been asked to do anything for the state.

"When he come back to me, he don't ask me (the same questions)," he says of the 2002 meetings. "He ask me, for example, the name of signs, the name of establishment, do you know this person." He admitted continuing to lie to his interrogators throughout the year.

Curveball suggests that the BND implied that his then-pregnant wife, who was at that point trying to get to Germany from Spain, would not be able to join him unless he co-operated. "He says, you work with us or your wife and child go to Morocco."

According to his account, there were at least a dozen meetings in 2002. He says none of the new round of questions dealt with a birdseed purification plant, in Djerf al-Nadaf in south-east Baghdad, that he had claimed was where Saddam's bioweapons programme was based.

This was supposed to be where the mobile trucks were loaded up. "The BND did not ask me about this project, because they knew I was not right."

But in January 2003, several weeks before Powell's speech, the interrogation returned to trucks and birdseed. "That was the first time they had talked to me about this since 2000." Curveball says it was clear to him that the drums of war were beating ever louder, but he maintains that he still thought his story about the mobile trucks had been discounted.

Then came the UN speech. He says the BND had told him that everything he had told them would stay in Germany and that he was shocked to see Powell holding up diagrams that he knew had been prepared from his fraudulent descriptions.

"So I call the person that is responsible for me. I tell him that I see what Colin says, and he says 'ok, this ist ein klein', a small problem. You come ... tomorrow, and you speak with me. (He said) you must go now from this home because this flat is very dangerous for you and for your family. From 9 April you can return."

For the next two months, Curveball claims he was in virtual lockdown, prevented by the BND from watching TV and having limited contact with anyone outside his hotel. He said he knew the war had begun from snatched conversations with strangers.

Asked about how he felt as the bodycount among of countrymen mounted and Iraq descended into chaos, Curveball shifted uncomfortably in his chair, then said: "I tell you something when I hear anybody – not just in Iraq but in any war – (is) killed, I am very sad. But give me another solution. Can you give me another solution?

"Believe me, there was no other way to bring about freedom to Iraq. There were no other possibilities."

"Saddam did not [allow] freedom in our land. There are no other political parties. You have to believe what Saddam says, and do what Saddam wants. And I don't accept that. I have to do something for my country. So I did this and I am satisfied, because there is no dictator in Iraq any more."

Curveball's reinvention as a liberator and patriot is a tough sell to many in the CIA, the BND and in the Bush administration, whose careers were terminally wounded as mystery surrounding the whereabouts of the missing bioweapons in the post-invasion months turned into the reality that there were none.

His critics — who are many and powerful — say the cost of his deception is too difficult to estimate, even now. As the US scales back its presence in Iraq it is leaving behind an unstable country, whose allegiance — after eight years of blood and treasure — may not be to the US and its allies after all. For Curveball though, it's time to reinvent himself. He has returned twice to Iraq and started a political party, winning a modest 1,700-odd votes in the general election last March. He has also written a manuscript about his past 10 years and is looking for a publisher.

In the meantime, things seem to be turning increasingly sour with the BND. The spooks helped him, his wife and two children get German citizenship in 2008. At the same time they cut off his stipend of €3,000 (£2,500) per month and told him to fend for himself.

That has proved difficult around Karlsruhe, a medium-sized university town near the French/German border where his reputation as a fantasist travels ahead of him. On the first day of our interviews, an official at the town hall told him he and his family are forbidden from leaving the country.

He now spends his days in a rented flat on the outskirts of town with a doting wife — who says she only learned of her husband's exploits three years ago — and two young children. He no longer has the Mercedes Benz that the BND had supplied him with. And he is well aware that the secret service — and his new homeland – seems to be fast tiring of him.

"I will be honest with you. I now have a lot of problems because the BND have taken away my flat, taken my mobile phone: I'm in a bad position. But if I could go back to 2000, if someone asked me, I would say the same thing because I wouldn't want that regime to continue in our country."